Economy

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross.

Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee.

Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.

European nations are discussing various ways to help troubled Greece cope with its mountain of government debt, officials indicated Tuesday, as conflicting reports sent markets on a roller coaster ride, bolstering the faltering euro and contributing to a stock market rally that later pulled back from its heights. The specifics of any bailout remained unclear and officials played down reports that Germany and France had already agreed on a rescue plan for Greece.

What has been happening to the euro over the past few days is a stark warning to governments all over the world. No, the Eurozone will not break up in the coming months, though it may well do so at some later date. The problems that the Eurozone's weaker members – especially Greece but also Portugal, Spain, Ireland and Italy – have exposed is that governments of countries with weak finances are being put on notice. They must fix their finances swiftly or face the consequences of a sudden loss of confidence. Greece is the canary down the coal mine.

Germany is preparing to drop its vehement opposition to a rescue package for Greece, fearing that a rapid escalation of the debt crisis in Southern Europe could endanger German banks and damage the euro.

Since its launch, the euro has outperformed expectations, establishing itself both as the world's secondary reserve currency and the second most traded currency after the U.S. dollar. Because of this stellar introduction, the euro has been proposed as the new primary reserve currency in place of a devaluing U.S. dollar. However, its unusual foundation presents risks to which most investors are unaccustomed.

We are in unchartered seas of international financial turmoil. The mega rich have no loyalty to anyone or anything. I know some of them, made one of them from scratch, and I assure you would put their mothers in a microwave for the right price. This is a financial world war taking place behind top secret meetings that are deciding our fate while not even knowing they are out of control.

China Southern Airlines Co., the nation’s largest carrier, and Air China Ltd. are slashing prices to compete with the country’s new high-speed trains in a battle that Europe’s airlines have largely already ceded.

Many were brought into the easy money fold by going into massive amounts of debt. And who has most of the debt? That is right, the average American ... The bottom 90 percent have been saddled with 73 percent of all debt. In other words much of their so-called "wealth" is connected to debt. Debt is slavery for many especially with egregious credit card companies taking people out with absurd credit card tricks and scams. Yet the corporate propaganda machine is strong and mighty.

A slowly sinking generation; a remorseless assault on the identity of many men; the dissolution of families and the collapse of neighborhoods; a thinning veneer of national amity—the social legacies of the Great Recession are still being written, but their breadth and depth are immense. As problems, they are enormously complex, and their solutions will be equally so.

When it comes to employment, there are roughly three broad categories in the United States. The folks in the upper-income group are not suffering much, if at all, from the profound reversals in employment brought about by the Great Recession. Those in the middle have been hit hard. The job losses there have been severe and long-lasting. But for those in the lower-income groups, the scale of the employment crisis has been mind-boggling.

Australian employers added the most workers in more than three years in January, sending the currency surging on speculation the central bank will resume its record round of interest-rate increases

The number of people employed rose 52,700 from December, the fifth straight monthly gain, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for 15,000 new positions. The jobless rate fell to 5.3 percent from 5.5 percent.

"Obama's Republican Class War Presidency" with financial economist, Michael Hudson, on Obama's State of the Union Speech and its economic consequences. The reappointment Federal Reserve Chairman, Ben Bernanke.

"Freddie Mac said yesterday that it would buy “substantially all” loans with payments late by 120 days or more from its securities in the next month. Fannie Mae said later that it will “increase significantly” its buyouts, setting a less aggressive timeline. The value of Freddie Mac’s delinquent loans is $70 billion, while Fannie Mae has $130 billion of the debt, according to Citigroup Inc. data. "

"The concern is that further market jitters over countries' abilities to pay back their debts could spread to the U.K., driving up the cost of insurance against a U.K. default, analysts say."

"In one sign investors are worried, the cost of insuring against a U.K. sovereign default has jumped to $97,000 a year to insure $10 million of debt, compared with $57,000 in early September, according to CMA DataVision.

That cost is lower than it was in the financial crisis last year. But in a sign that banking-sector concerns have been shifted onto sovereigns, the cost of insuring some banks against default is now less than insuring the U.K. government: On Tuesday, the cost of insuring the debt of HSBC was $85,000 a year compared with the U.K.'s $97,000."

"WASHINGTON (MarketWatch) -- Over the next few years, a wave of commercial real-estate loan failures could threaten America's financial system, and in the worst case scenario, hundreds of additional community and midsize banks could face insolvency, a congressional watchdog group said Thursday.

According to a report by the Congressional Oversight Panel, a watchdog group for a $700 billion bank-bailout package, about $1.4 trillion in commercial real-estate loans will reach the end of their terms between 2010 and 2014, of which nearly half are now under water (that is, the borrower owes more than the underlying property is currently worth)."

"TRENTON — Gov. Chris Christie will declare a state of fiscal emergency today and freeze $1.6 billion in unexpended funds, including $475 million that had been intended as school aid, according to two administration officials.

Christie plans to sign an executive order before a scheduled 10:30 a.m. speech to a joint session of the state Legislature allowing him, due to a budget deficit he estimates at $2.2 billion, to direct the Treasury Department to freeze funds, said the two officials, who spoke on the condition they not be identified."

"Feb. 11 (Bloomberg) -- Hungary’s budget deficit may exceed the government’s target in 2010 and 2011 as some spending cuts may “prove difficult to sustain,” the Organization for Economic Cooperation and Development said.

The shortfall may reach 4.1 percent of gross domestic product this year, compared with the 3.8 percent goal that is part of its 20 billion-euro ($27 billion) bailout loan agreement, according to OECD forecasts completed on Dec. 18 and published today. "

"There is a no jobs recovery in sight forecast for the state. Connecticut will continue to lose jobs through 2011, though the rate of loss will slow down.

That’s the overall assessment from the Connecticut Center for Economic Analysis in its latest economic forecast, the “CCEA Connecticut Economic Outlook,” released Wednesday."

"Not only has total employment declined, but the state has lost large numbers of high-skill, high-wage jobs in manufacturing and financial services, and seen vigorous growth in mostly low-skill, low-wage jobs in accommodations, food service, and health care.

The current fiscal crisis — a cumulative deficit of $1.2 billion from 2009-2010 — threatens to pull Connecticut’s economy down even more. "

"Funding for 100 of the nation’s largest pension plans fell by $24 billion last month, according to a new report.

In January, pensions experienced asset decreases of $12 billion and liability increases of $12 billion, according to the Milliman 100 Pension Funding Index, which comprises 100 of the nation’s largest defined benefit pension plans. Milliman is based in Seattle."

"Health insurer WellPoint blames a shift in demographics and rising medical costs for its planned 39 percent rate hike for some California customers.

In a memo obtained by The Associated Press, WellPoint Inc. tells Health and Human Services Secretary Kathleen Sebelius that because of the weak economy, healthy people are dropping coverage or buying cheaper plans. The decline in premium revenue means there's less money to cover claims from sicker customers who are keeping their coverage."

"European Union leaders set a precedent by bailing out Greece and other euro zone countries such as Portugal would have a strong case for tapping the region for funds if they needed to, Erik Nielsen, chief European economist at Goldman Sachs, told CNBC.com Thursday.

"If I was the Portuguese finance minister needing this one day, I would think I have a strong case," Nielsen said. "

"CalPERS’ investment committee is scheduled to discuss using leveraged bonds as a way to diversify risk in its entire portfolio, similar to a strategy adopted last month by the State of Wisconsin Investment Board, according to agenda documents for its Feb. 16 meeting."

"On Jan. 26, the Madison-based Wisconsin board approved leveraging its $67.8 billion core fund to achieve an asset allocation of 104% through use of synthetic futures and swaps."

"Another report in the agenda documents showed the real estate portfolio returned -48.8% for the year ended Sept. 30 after fees. The real estate quarterly report to the board, showed the core portfolio lost half its value after fees, returning -50.5%, and the opportunistic portfolio lost 47.5% after fees in the period."

"Feb. 11 (Bloomberg) -- U.S. foreclosure filings rose 15 percent in January from a year earlier and exceeded 300,000 for the 11th consecutive month as modification programs failed to keep delinquent borrowers in their homes, RealtyTrac Inc. said.

A total of 315,716 properties received a notice of default, auction or bank seizure last month, or one in 409 households, the Irvine, California-based seller of default data said today in a statement. Filings fell 10 percent from December.

Bank seizures, also known as real-estate-owned or REOs, may rise to a record 3 million this year, RealtyTrac said last month. About 66,000 delinquent loans out of a targeted 4 million by 2012 were permanently modified as of Dec. 31 under the Obama administration’s Home Affordable Modification Program, according to the Treasury Department. About 787,000 mortgages are in trial programs that change loan terms, the Treasury said Jan. 19.

“It’s almost inevitable that modifications will fail,” Michelle Meyer, New York-based U.S. economist for Barclays Capital Inc., said in an interview. “Over the next several months, we should see REOs increase at an accelerated pace.”"

"The plague of foreclosures has spread in a big way into heartland states that did not experience soaring prices during the housing boom, were not major markets for subprime or alternative financing and are not areas of high unemployment.

The nation’s top ten foreclosure states now include Illinois, Utah, Idaho, Texas, New Jersey and Georgia, according to January data from RealtyTrac. In January, Montana and New Mexico led the nation in foreclosure growth.

The trend suggests that no locality is immune from what has become the leading cause of mortgage defaults, negative equity.

Nationwide, foreclosure filings are up 15 percent from a year ago and down five percent from December, a pattern similar to last year. Nevada, Arizona, California and Florida are still top the list of foreclosures but Illinois is now fourth for foreclosure filings-default notices, scheduled auctions and bank repossessions. "

The solution to many of America's problems just occurred to me. We start by sending the the 15 million illegal aliens to Australia. That will take a load off our over taxed municipal services, like schools, hospitals, etc.

Things are great in Australia for work, the country just added 58 k jobs. Let's see 15 million illegals divided by 58k jobs hmmm about 260 people per job tough but I am sure it will get better, After all China is buying the country that means everyone will be working and rich. There is plenty of open land there. Plenty to eat if you like bar b q roo.

Yep socialism is the answer just ask the countries of Eastern Europe.

I think we should quit building a fence on our southern border and build boats so the people risking life and limb to get to this country can get a free boat to Australia. Yep I see it as a win win win. I don't know why I didn't think of it before.

Should I have posted this in the Definitive Humor Thread?

On a serious note perhaps we should take up a collection on this site to help Lynette. I would recommend we do it through a church in her area. Anyone near Redmond on this site.? Can we start a thread here to organize this? Surely some people who read this site live up there. Come on Mr. Gates we know you are here lurking looking for investment tips.

When we look at the world economy today, wherever we turn we see a wall of risk. And sadly this is an insurmountable wall with risks that are totally unprecedented in history. There has never before been a potentially catastrophic combination of so many virtually bankrupt major sovereign states (US, UK, Spain, Italy Greece, Japan and many more) and a financial system which is bankrupt but is temporarily kept alive with phoney valuations and unlimited money printing. But governments will soon realise that they are not alchemists who can turn printed paper into gold. The consequences of the global financial crisis are potentially catastrophic..

I got a call this morning from a bank bond trader who alerted me to the following story in Bloomberg, telling us that Fannie and Freddie are buying up all mortgages currently in their pools 120 or more days past-due. The process and the math involved will probably bore the general public and so they will probably never get the true story, but here is the bottom line…

–The government’s balance sheet (through these two GSEs) is about to balloon even more, and my trader friend tells me the number of mortgages is significantly higher than most observers thought.

–If it is true that the Chinese are dumping their MBS, they just saw the bid drop another point or more.

–Fannie and Freddie will tout this as a way to not have to tap into the Treasury, but these loans were and still are headed for foreclosure.

The only advantage here is that they are more efficiently calling these in, eliminating the extra interest rate expense they had (which was guaranteed to the now-in-even-more-pain securities holders) on these non-performing loans. The result? They will now be financing a much, much larger inventory of delinquent mortgages at sub 1% rates.

And the MOPE is: Don’t worry be happy. All is well. Don’t you know? That’s why we pay those Fannie and Freddie executives the BIG bucks!

The Bloomberg article title gives a hint at more MOPE: "Fannie, Freddie Loan Purchases May Spur ‘Wad of Cash’," suggesting that the money taken from these pools will go back into the market and off-set the Feds end of MBS purchases. Uh humm. So I called a few portfolio managers. No, they are not planning on reinvesting into the mortgage market. As I suspected, they’re pissed off at just another erratic act of the government and its bankster henchmen.

Marc Faber on CNBC. Dennis Kneale was so upset he almost had kittens. If Faber keeps this up he won't be asked on the show again. Interestingly, he actually said stocks may go higher at the end of the interview but not for the reason the interviewer wanted to hear.

Redmond has established a utility assistance fund to help residents pay water bills, a move that came Monday as dozens of people donated a total of $1,200 to help a cancer victim keep water service.

Because of those donations, Lynette Nicks, 39, won't have to pay her water bills for about the next 18 months, she said.

About 100 people called the city and another 30 visited its offices asking how to help, the day after The Bulletin ran a Sunday story about Nicks. Local residents made most of the calls, but people also phoned from out of state, according to city staff.

I thought the Guns and Butter audio with Michael Hudson was quite good. I was surprised by the 1 billion amount he pinned to the total subprime cost. Everything I have read has pegged the figure at 1.5 trillion.

I asked for a source where I could read more about the 1 billion price tag and was given this link.

"Feb. 12 (Bloomberg) -- Jacques Attali has a tip for people who detect “green shoots” of recovery: Forget it. "

"I don’t understand why people are even thinking of saying that the crisis is over. I don’t see the slightest reason why it is over. GDP is growing, but growing from a basis which is low because of the depression.

We have avoided catastrophe by transferring debts from the banking sector to the public sector."

"Nayeri: Don’t you think the U.S. stimulus package was a colossal effort at rescuing America and the global economy?

Attali: It’s an irresponsible effort. It’s 50 times the Marshall Plan, without any way of financing it. It’s easy to spend without financing. You just say, “I have problems; my grandchildren will solve them.” "

"I am not grim. If you don’t see the risks, you cannot avoid them. If you don’t see the rocks, the boat is shipwrecked."

Well V, you can be as sarcastic as you like, the point is OUR system IS way better than YOURS..... Socialism does work, France (where I came from originally) has an even more socialist health care system, deemed the very best in the world.

If capitalism is so good, why is it your economy is so much worse shape than ours? It's not that Australia or France have "socialist" gocernments either, they are both as conservative as they come, because we haven't socialise everything like say the Chinese or Cubans, only those that are deemed ESSENTIAL. I can't see how you can be critical.

Your notion that 15 million more people could live here is laughable..... they'd all stave to death! 80% of our country is uninhabitable, and we are already almost out of water for the 22 million who already live here.

Oh, and BTW, if I had to choose between living in the US or Eastern Europe...? I'd choose Eastern Europe hands down, would not even hesitate. Of course I'd rather live in Australia, or better still, New Zealand. In fact, the USA would be the LAST place I'd consider living in....